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Combating the ongoing sequester, almost all major defense
companies reported in the green over the last five trading days.
Big defense firms have been able to grab big ticket programs from
the U.S. Department of Defense (DoD) while Foreign Military Sales
(FMS) still remained its key tool.

Among the important updates in the past one week, Los Angeles-based
defense contractor
Northrop Grumman Corp.
(
NOC
) turned out to be the clear winner, securing a $9.9 billion
contract from the Pentagon. The #1 contractor -
Lockheed Martin Corp.
(
LMT
) - proved yet again its dominance, securing a nice mix of big and
small contracts from the DoD funding list (see the last recap here:
Defense Stock Roundup for June 3, 2014
).

Recap of the Week's Most Important Stories

1. The most significant award went to Northrop
Grumman, builder of the B-2 Spirit bomber, better known as the B-2
Stealth Bomber. The company received a mega contract, worth $9.9
billion, from the U.S. Air Force to offer modernization and support
services to the B-2 stealth bomber program (read more:
Northrop Clinches $9.9B DoD Contract
).

2. Lockheed Martin, in a deal valued at $1.9
billion, delivered an F-16 fighter jet to Iraq, the first of 36
that the country ordered over 2011 and 2012. Production is expected
to continue through 2017. The contract also includes mission
equipment and support package to be delivered by Lockheed Martin
and other U.S. and international contractors. Iraq joins 27 other
nations around the world in utilizing the F-16 Fighting Falcon.
This program celebrates its 40th year of evolution with deliveries
over 4,540 F-16 aircraft made to date.

Shares of all defense biggies were in the green in the past one
week. The biggest gainer
L-3 Communications Holdings Inc.
(
LLL
) rose 4.40% over the time frame. In the past 6 months,
General Dynamics Corp.
(
GD
) has led the way, with
Textron Inc.
(
TXT
) following suit. The following table shows the price movement of
the major defense players over the past 5 trading days and during
the last 6 months:

Company

Last Week

Last 6 months

LMT

+2.27%

+20.65%

BA

+1.40%

+3.19%

GD

+2.70%

+33.21%

RTN

+0.83%

+13.21%

NOC

+2.64%

+13.01%

COL

+1.76%

+10.11%

TXT

+4.31%

+26.95%

LLL

+4.40%

+23.81%

Other Stories You May Have Missed

Apart from the top five developments in the defense sector
discussed above, President Obama announced a $1 billion fund to
beef up defensive capabilities of new allies in Eastern Europe. The
"European Reassurance Fund" will look to bolster the capability,
readiness, and receptiveness of North Atlantic Treaty Organization
(NATO) forces to deal with continued threats in the region.

The program, unveiled in Poland, includes Georgia, Moldova and
Ukraine. This initiative reaffirmed Obama's commitment to Europe
following months of tensions surrounding the February expulsion of
Ukraine's pro-Russian president Viktor Yanukovych. This fund will
be included in the Obama administration's fiscal 2015 war-fighting
request, i.e., the Overseas Contingency Operations (OCO) Fund. The
OCO fund is essentially government-speak for foreign wars and "war
on terror" operations.

What's Next in the Defense World?

The aerospace and defense sector is getting accustomed to budget
cuts and the easy upward slope of last year is likely to hit a
plateau. While the word "sequester" rang an ominous bell for the
defense industry last year, the sector is holding up well this
year. Moreover, escalating tensions in Eastern Europe and demand
for defense products in the Middle East and other Asian nations may
keep demand alive.

We remind investors that the Zacks Industry Rank for
aerospace/defense is within the top one-third of the list of
260-plus industries. Hence, the prospects for this industry are
still very much in place. We, however, expect the slightly
flat-to-bearish run of the defense stocks to persist in the coming
days (To know more please see:
Zacks Industry Rank
).

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